We all still processing the data coming in from India’s radical experiment with money, and I still think that is way too soon to pass any judgement at all on whether the experiment has been worthwhile or successful, but it is interesting to see some of the immediate effects of the government’s policy of de-monetisation. For example, fish.

Modi’s surprise announcement wiped out 86% of the nation’s currency overnight, leaving the vendors at Panjim’s fish market to suffer heavy losses. “Nobody has cash, so they’re not buying fish.”

The headline, of course, sets up a slightly false dichotomy because the choice facing the Goan fish market traders is not cash or credit card but cash or an electronic substitute for cash. And it gives me an excuse to post a picture of me in Goa, because I just read an article that said that blog posts with pictures have more of an impact than text-only.

A completely irrelevant picture of me in Goa.

Now, as it happens, the local government in Goa have already decided that the future lies beyond cash and very shortly those fish traders (as well as absolutely everybody else) will have a substitute.

From January, Goa’s government has announced that the city will go “cashless”, meaning every street vendor, rickshaw driver and shopkeeper must offer their customers the option to pay using a debit card or mobile phone.

Is it possible to imagine Goans buying fish without cash? Well, yes. Look at Kenya, where there are now more than 33 million mobile money users and 174,000 mobile agent locations. The most recent figures from the Central Bank of Kenya (CBA) show an astonishing trend. From February 2013 until September 2016, the number of monthly M-PESA transactions almost tripled, going from 53 million to 131 million, while the number of card transactions fell from 34 million down to 18 million. Yes, you heard that correctly. While mobile money using was tripling, card use was halving. I am told by reliable sources that one of the key reasons for this, apart from M-PESA being accepted at some 150,000 retail outlets now in a country with only around 10,000 cards terminals, is that when it came time to re-issue EMV cards for Kenyan bank customers, the customers had to go their local branch, with identification, and stand in line to get their new card. Many of them just didn’t bother, especially since they had already started to use mobile money instead of cards.

Central Bank of Kenya statistics show a decline in the use of credit and debit cards, despite the number of Kenyans holding them rising.

Anyway, the point is that an astonishing 96% of Kenya household now have at least one M-PESA user. That means, to all intents and purposes, that mobile money is an alternative to cash. That’s not to say that the cards guys are taking it laying down. They can read the papers just as well as I can, and so they have begun to look at alternatives to the dip, tap or swipe at point of sale and are investigating more mobile-centric alternatives.

Visa, has entered into partnership with Ecobank, to roll out “mVisa,” an innovative mobile payment service in 33 African markets by year-end. Mvisa enables consumers to pay for goods and services for their everyday expenses from groceries to taxi services by simply scanning a QR code on a smart phone or entering a merchant identification number into their feature phones

The Kenyan banks are also preparing to launch an instant payments switch so that Kenyans with bank accounts can send money to one another instantly using their mobile phones so at some point in 2017 there will be bank-account, payment-account and card-account competition in the marketplace, which should be great for users.

The Kenya Bankers Association (KBA) yesterday unveiled Integrated Payments Service Limited (IPSL) — the company that will facilitate direct transfer of money between banks without going through M-Pesa.

The M-PESA figures are fascinating and they show just how effective a mobile solution can be. So how come India didn’t have this kind of mobile infrastructure in place before the government decided to de-monetise. It’s not because Indians don’t have phones, don’t have entrepreneurs, don’t have programmers and don’t have users who would prefer mobile solutions. They have all of these. What they didn’t have, until recently, was a regulatory platform to build on. This began to change last year when the RBI licensed 11 “payment banks” to provide competition and the National Payment Corporation of India launched their Universal Payment Interface (UPI). I said at the time that I thought these moves would grow the sector.

I am sure that the competition and innovation that these non-banks will bring to the Indian market will lead to a pretty rapid increase in the use of mobile financial services there

Mobile is the future of fish purchases as far as I can see. The most commonly used mobile wallet in India, Paytm, saw its volumes pretty much double (to around 7m transactions per day) following the withdrawal of the bank notes and I’m sure new services from the payment banks will help such mobile plays to continue to grow. However, the first of those payment banks only went in to operation about a week before the de-monetisation so they didn’t really have much of chance to make an impact. Hence my thinking that it may have been better for India to have waiting until the more flexible regulatory regime had begun bear fruit before. I’m going to blog in more detail about the Indian experiment as more data comes in, but I just wanted to put down a marker here to make the point that given the appropriate regulatory infrastructure I think that the evidence is clear that mobile phones do indeed provide a viable alternative to cash.

6 thoughts on “Fish without cash”

Just to rebalance the dialogue here … 131 million transactions in a country of 40 million – that’s about 3 per person per month. Which matches my impression of Kenya albeit a few years old now.

Cash is the major force there for the economy, and by that I mean the real one the people have on the streets, not the plastic Western invention that NGOs hyperventilate about.

The bounty of Kenya is not that mPesa is used much – it isn’t – it is that it has 3 independent payment systems: Banks, mPesa and Cash. It’s not that any one of these is necessarily better or more idealistic than the others. It’s that none of these three are likely to go soon, leaving Kenya in a fine position to keep its growth pumping along. It’s that the poor have a range of options to keep the street economy humming.

The Kenyan economy looks safe and diversified. Just don’t tell anyone in the NGOs and the supra-nationals and India.

A fair point. Assuming 15m active monthly users, it’s about two transactions per week for M-PESA users, which means that most transactions remain cash. I stand by my point though – if the Kenyan govt decided to remove high-value banknotes, since almost all households have access to M-PESA, fish sales would be likely unaffected.

That argument is frequently made, and sounds good. But, if we factor in misinterpretations down the line, misunderstandings as to how the economy works, and ignorance of who’s interest, cui bonoi, who are the supporters, we’re left with a problem – what sounds like a good western liberal argument in our living rooms is actually playing with fire in the developing nations.

Maybe this argument was made to Modi, and the cash used by the poor was declared invalid. But we still don’t know why – cui bono?

So I’d go back to the mission. What are you trying to achieve? The typical claims made by those who are proponents of the war on cash are 1. terrorism, which isn’t an intelligent conversation, 2. money laundering, which makes no sense in a corruption rich environment, as there are too many alternates, and 3. tax base, which also makes little sense because shocking the economy results in less taxes not more.

Every time I analyse this, I come to the same conclusion – softly softly. Move the poor into the middle class with trade. Boost trade by any mechanism. Therefore, lots of cash, lots of mPesa and lots of competitive banking. As far as I can see, Kenya scores high on all three. Removing cash only makes things worse.

Wasn’t it (then) Malaya where the fixed price control on the catty of fish resulted in the unit (catty) varying along the distribution chain as well as with supply and demand? Sort that out on a VAT return!
The stories of the Indian mutiny and recent UK fiver suggests that rumours of animal products in or on the notes would have caused comparable chaos and reduction in cash usage.
Anyway, good logic fails against popular emotions – e.g. the USD2 bill.

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